Roundabout Production
Also known as: The Detour of Production, Structure of Production, Capitalistic Production
Formulated by
Eugen von Böhm-Bawerk
(1889)
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From
Capital and Interest
Definition
The Austrian insight that production becomes more physically productive the more it is broken into indirect, capital-using stages spread out over time, rather than aiming directly and immediately at a finished consumer good. A fisherman who first spends time building a net, instead of catching fish barehanded, produces far more fish per hour once the net exists, at the cost of waiting through the detour required to build it. Eugen von Böhm-Bawerk generalized this observation in his Positive Theory of Capital (1889): lengthening the structure of production, adding more capital-intensive, roundabout stages, raises the output obtainable from a given amount of labor, which is why capital accumulation tends to raise real wages over time even without any change in how hard anyone works. The concept matters directly for debates about capital and labor: money paid to shareholders or reinvested in a business is not simply withdrawn from 'the economy', it can finance exactly the lengthening of the production structure that makes labor more productive down the line.